14 June 2017

Uganda: Lenders Cautious About Our Debt - Experts, Analysts Warn

Tax analysts have cautioned the government to concentrate on expanding the local tax base as a measure of sourcing revenue rather than borrowing domestically, which tends to crowd out cheaper credit to the private sector.

The call came at a time when the country's external and domestic debt has hit $8.7 billion, an amount that is more than the national budget. According to Matia Kasaija, the minister of Finance and Economic Development, the debt burden accounts for 33.8 per cent of the country's Gross Domestic Product (GDP).

Analysts said debts in the near future will not be sustainable, and there is a likelihood multilateral organizations and donor countries will lose confidence in Uganda's ability to repay the loans. Fred Muhumuza, an economist, said lenders don't want to put their money in countries that will become insolvent in the near future, and that is where Uganda is headed.

"Already, we have a big debt as a country and soon we will need funds for the standard gauge railway (SGR), opening roads and airports in the Bunyoro oil fields. This will further increase our debt burden," he said.

Muhumuza, who was speaking at a post budget dinner organized by KPMG in Kampala, added that some lenders have started dragging their feet on lending to the country.

He observed that going by the strain caused by servicing the debt, some international financiers are not at ease investing in Uganda. They anticipate a possibility of failure to pay.

"You can see that getting funds from China's Exim Bank to finance the SGR is taking too long. These people are just dragging their feet because they are not sure if Uganda will be able to pay," he warned.

He added: "Banks are taking flight to safety after the increasing cases of non-performing loans. Many financiers doubt Uganda's ability to pay back loans," he said.

Muhumuza also observed that banks prefer to lend to government by buying securities such as treasury bills and bonds because they are sure of their return.

"Uganda's debt has increased mainly because government borrows money it cannot absorb fully. Government borrows money for a project that is still on the planning stage. With long procurement and other bureaucratic processes, projects are delayed while the loans have to be paid back," he said.

Muhumuza said that when Uganda loses the confidence of partner governments, the country will resort to borrowing from multinational financial organizations, which come with higher interest rates and terms.

"If you borrow from institutions such as the International Monetary Fund (IMF) or World Bank, expect tough conditions. They will do a diagnosis of the economy. At the end of the day, they will propose retrenching and dropping of other projects," he said.

Asad Lukwago, a Partner at KPMG Uganda, said there is a need to improve project implementation to not jeopardize debt sustainability.

"We don't have to reach the level of Mozambique. Mozambique is insolvent again despite debt relief the country got in 2006 under the Heavily Indebted Poor Countries (HIPC) initiative. They borrowed heavily against their huge reserves of coal and natural gas but became bankrupt in January 2017," he said.

Lukwago said that the sudden decline in economic growth in Mozambique forced them to run back to IMF.

"Let's curb tax evasion, clamp down on illicit financial flows, restrict non-concessional debt financing to 'must haves' and supply-friendly fiscal measures to boost productivity and investment through structural reforms," Lukwago said.

Uganda

In Defense of Uganda's Red Pepper

CPJ has included eight staffers of the controversial Ugandan tabloid Red Pepper in its 2017 global census of imprisoned… Read more »

Copyright © 2017 The Observer. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 900 reports a day from more than 140 news organizations and over 500 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.